Burretr Partwersuip, LTD. omama o1,xrnmanca Wannan B,Borrert, Gormat Parra January 24, 1962 Wirt Seorr Our Performance in 1961 Lhave consistently told partners that it is my expectation and hope (it's alwa; hard to tell which is which) that we will do relatively well compared to the g¢ era] market in down or static markets, but that we may not look 60. good in e vancing markets. In strongly advancing markets I expect to have real difficy keeping up with the general market. ‘Although 1961 was certainly a good year for the general market and, in addi a very good year for us on both an absolute and relative basis, the expectati in the previous paragraph remain unchanged. During 1961, the general market a6 measured by the Dow-Jonee Industrial / age (hereinafter called the “Dow") showed an over-all gain of 22.2% includir dividends received through ownership of the Dow. The gain for all partners operating throughout the entire year, after all expenses of operation, but be payments to limited partners or accrual to the general partner, averaged 4 ‘The details of thie gain by partnership are shown in the appendix along with sults for the partnershipa started during the year. We have now completed five full years of partnership operation, and the ret of these five years are shown below on a year-by-year basis and elso on 4 « lative or compounded basis. These results are stated on the basis describ: the preceding paragraph; after expenses, but before divieion of gains amon; partners or payments to partners. Partnerships Dow-Jones Operating Partnership Industrials Year Entire Year Gain Gain * 1957 3 10.4% -8.4% 1958 5 40.8 38.5 1958 6 25.9 19.8 1960 7 22.8 -6.3 1961 1 45.8 22.2 * Including dividends received through ownership of the Dow. ‘ On a compounded basis, the cumulative results have been:Partnership Dow-Jones Year Gain Industrials Gain 1957 10.4% 8.4% 1957-8 55.6 26.9 1957-8 95.9 52.2 1957-60 140.6 42.6 1957-61 251.0 14.3 These results do not measure the gain to the limited partner, which of course, is the figure in which you are most interested. Because of the varying partner ship arrangemente that have existed in the past, I have used the over-all net gain (based on market values at the beginning and end of the year) to the partne ship as being the fairest measure of over-all performance. On a pro-forma basis adjusted to the division of gains entailed in our present Buffett Partnership, Ltd. agreement, the reeulte would have been: Year Limited Partners' Gain Dow Gain 1987 9.3% -8.4% 1958 32.2 38.5 + 1959 20.8 19.9 1960 c 18.6 6.3 1961 35.9 22.2 COMPOUNDED 1957 9.3% 8.4% 1957-8 44.5 26.9 1957-8 TA 52.2 1957-60 107.2 42.6 1957-61 181.6 74.3 A Word About Par ‘The outstanding {tem of importance in my selection of partners, as well as in my subsequent relations with them, has been the determination thet we use th sarhe yardstick. Lf my performance is poor, Il expect partners to withdraw, and indeed, I should look for a new source of investment for my own funds. 1 performance 1s good, ] am assured of doing splendidly, a state of affairs to which Iam sure I can adjust. The rub, then, is in being sure that we all have the same ideas of what is goc and what is poor. I believe in establishing yardaticke prior to the act; retro spectively, almost anything can be made to look good in relation to somethin; or other.T have continuously used the Dow-Jones Industrial Average as our measure of par. lt 1s my feeling that three years is @ very minimal test of performance, pee the best test consists of a period at least that long where the terminal leve of the Dow is reasonably close to the initial level Be foe vn retire feet (er sere ny ining cee) moleeneercleuren onan W hag the advantage of being widely known, has a long period of continuity. ane * tects with reagonable accuracy the experience of investors generally with tt reirket, [have no objection to any other method of measurement of general fnarket performance being used, such as other stock market averages, leadiny diversified mutual stock funde, bank common trust funds, etc. You may feel I have established an unduly short yardetick in that it perhaps ap pears quite simple to do better than an unmanaged index of 30 leading common peetee. Actually, this index he generally proven to be a reasonably tough co petitor. Arthur Wiesenberger's classic book on investment companies Hsts performance for the 15 years, 1046-60, for all leading mutual funds, There 3 presently over $20 billion invested in mutual funds, 80 the experience of these funds represents, collectively, the experience of many million investors. My tan Let, though the figures are not obtainable, 12 that portfolios of most Je fag investment counsel organizations and bank trust departments have achieve results similar to these mutual funds Wiesenberger lists 70 funds in his “Charts & Statistice" with continuous reco: pince 1946. Ihave excluded 32 of these funds for various reasons since they vince jelanced funds (therefore not participating fully in the general market F’ Specialized industry funds, etc. Of the 32 excluded because 1 felt a compari seid not be fair, 31 did poorer than the Dow, 60 they were certainly not ex- cluded to slant the conclusions below. Of the remaining 38 mutual funds whose method of operation 1 felt was such & make @ comparison with the Dow reasonable, 32 did poorer than the Dow, on Tha better, ‘The 6 doing better at the end of, 1960 had aseets of about $1 billie sed the 32 doing poorer had assets of about $6-1/2 billion, None of the six tt were cuperior beat the Dow by more than @ few percentage points @ year. Below I present the year-by-year results for our period of operation (excludi 196) for which I don't have exact data, although rough figures indicate no var from the 1957-60 figures) for the two largest common stock open-end investr companies (mutual funds) and the two largest closed-end investment compani Mass. Inv. Investors Limitee Year Trust Stock Lehman = Tri-Cont. Dow Partner) 1987 12.0% © -12.4% w11.4% = 2.4% BAG + 8.3% 1988 444.1 +47.6 +40.8 433.2 438.5 432.2, 1959 + 8.2 +10,3 + 8.1 + 8.4 +19.8 +20.9 1960 - 0.8 - 0.1 + 2.6 + 2.8 = 6.35 +18.6 (From Moody's Banke & Finance Manual, 1961)